A report published by the United Nations Conference on Trade and Development (UNCTAD) revealed that over 7.3% of Indians are holding some form of cryptocurrency in 2021.
There were various reports by Indian media that over 15 million users are holding crypto, but now after the UN report, it is now clear that over 102.2 million citizens have some form of cryptocurrency in their investment portfolio.
India, which is just second to China with a population of over 1.4 billion, is expected to become the most populated nation in the next few years.
The report found that during the past few years, crypto is slowly increasing its presence, as citizens not only in metro cities, but rural areas are buying it in large numbers.
In order to tackle the growing crypto influence, the Reserve Bank of India (RBI) tried to bring all sorts of regulations, but it was struck by the Supreme Court of India.
In order to curtail crypto adoption, the Indian government imposed a 30% tax on profit and 1% TDS on each crypto transaction, which impacted daily trading, but even that was not enough to hold the crypto bandwagon.
According to the UNCTAD report, 15 of the top 20 countries in terms of ownership of digital currencies were developing nations, with India coming in seventh, one place below the US.
Ukraine topped the list, where 12.7% of the populace is crypto-asset owners, while the UK and Australia occupied the 13th and 20th positions respectively. Whereas, India’s western neighbor, Pakistan made it to the list in the 15th spot.
The report claims that during the COVID-19 pandemic, cryptocurrency adoption exploded globally.
People turned to cryptocurrencies to enable cross-border payments as remittance fees skyrocketed during the lockdown and different disturbances made it challenging to move fiat dollars outside. These digital assets provide a speedy and economical avenue for remittance in addition to their wild price growth.
According to the findings, crypto assets were employed as a hedge by middle-class families in developing nations against the value decline of fiat money. This was yet another important factor in the sudden rise in ownership of digital currencies.
According to a UNCTAD report, between September 2019 and June 2021, the cryptocurrency ecosystem grew by more than 2,300%. However, as regulatory agencies have cracked down hard on cryptocurrencies, Indian investors have grown wary of these digital assets.
However, the report also cited various concerns about the growing importance of cryptocurrencies globally and chalked out plans on how to control the growing adoption of crypto assets.
UNCTAD said that crypto could jeopardize the monetary sovereignty of many nations; it could also pose a severe risk to the country’s financial stability and promote tax evasion.
Crypto could jeopardize monetary sovereignty
Recent market shocks involving digital currencies indicate that there are private dangers associated with holding crypto, but if the central bank intervenes to preserve financial stability, the issue becomes a public one.
The monetary sovereignty of nations may be in jeopardy if cryptocurrencies take off as a common method of exchange and even informally displace national currencies.
Stablecoins provide special hazards in poor nations where there is an unmet need for a reserve currency. The International Monetary Fund has stated that cryptocurrencies pose dangers as legal money for some of these reasons.
A public digital system must be promoted
A domestic digital payment system that acts as a public utility is said to be able to satisfy at least some of the motivations for cryptocurrency use and restrain the growth of cryptocurrencies in emerging nations.
The monetary authorities may offer a central bank digital currency or, more likely, a quick retail payment system, depending on national capabilities and demands. UNCTAD implores policymakers to preserve the issuance and circulation of cash since doing otherwise runs the risk of highlighting the digital gap in developing nations.
Cryptocurrencies can promote tax evasion
While cryptocurrencies can make remittances easier, they may also make it possible to evade taxes and avoid paying them through unauthorized transfers, much like a tax haven where ownership is difficult to trace.
As a result, capital controls—a crucial tool for developing nations to maintain their policy space and macroeconomic stability—might become less effective.
Steps needed to curb the crypto expansion
• Enforce thorough financial regulation of cryptocurrencies by regulating digital wallets, cryptocurrency exchanges, and decentralized financing as well as prohibiting regulated financial institutions from storing cryptocurrencies (including stablecoins) or marketing related products to customers.
• Limit cryptocurrency advertising, just like you would for other high-risk financial instruments.
• Establish a public payment system that is secure, dependable, and reasonably priced for the digital age.
• Agree on and put into practice international tax cooperation in relation to cryptocurrency taxation, regulation, and information exchange.
• Redesign capital controls to account for cryptocurrencies’ decentralized, global, and pseudonymous characteristics.
With the growing adoption of crypto, it is certain that international agencies like the IMF and the UN are not very positive about the development of crypto as they fear that people will be free from the clutches that make them redundant in many aspects.